If you’ve ever been approached by a borrower who believes he needs 20% down to buy a house, you’re not alone. Real estate agents likely deal with it more, if only because they are often first in line when it comes to the homebuying experience.
So to put the record straight — but probably not for the last time, being that 97% of agents say they’ve worked with clients who consult family members for advice — the deputy chief economist at the National Association of Realtors (NAR) has published an advisory detailing how much a buyer needs to save, and from where it comes.
Despite the current fascination with all-cash buyers, Jessica Lautz, who also is director of research at NAR, reports that three out of every four buyers use financing. And that jumps to 91% when it comes to first-timers.
Dating back to 2018, the typical down payment for rookies has ranged from just 6% to 9%, Lautz found. Going back to 1989, when NAR first started collecting this data, the average has only been as high as 10%.
Repeat buyers are different, usually because they have cash from the sale of their present place to carry over to the next one. For them, the typical down payment was 23% last year. In fact, the down payments of repeat buyers have steadily increased as housing equity for owners has grown. But in 2014, repeat buyers put down only 13% of the purchase price.
While the majority of first-timers take out a conventional mortgage, nearly a third financed their purchases with FHA loan, according to Lautz, and one in 10 used a VA loan. Those mortgages allow borrowers to put down just a 3.5% down payment, in the case of FHA loans, and nothing down for VA mortgages.
Savings is the source for a down payment for nearly 70% of first-time buyers, according to the report. One in four used a gift from a friend or relative, but that share has declined from a high of 36% in 2010.
(Back then, the economist explains, there was a surge in first-time homebuyers because Congress gave them a tax credit, and family not only encouraged their progeny to take advantage of the benefit but also pitched in with some financial help. Also, now that the median age of a first-timer has hit an all-time high of 38, it is likely uncomfortable for someone that age to seek the help of others — even Mom and Pop.)
At the same time, 21% used some of their own financial assets for their down payments, including stock, bonds, and money set aside for retirement. Some even used cryptocurrency. During the 1997-2012 period, just 8% to 11% dipped into their own pockets for at least some of what they put down on a home.
High home prices often require buyers to need multiple sources for their DPs. For example, 10% of all rookies also used their inheritances, and 7% used a generational transfer from an inheritance.
So there you have it: An honest evaluation, but hardly the last one you’ll ever need.
